Street of broken dreams

"When I talk to you about gangs and graffiti, it's when usually the houses are empty. They have access to do their thing. And it's not really good for the kids to watch those kinds of things." -- Jose Ramos, father of four who owns two homes on the block ROSE PALMISANO, THE ORANGE COUNTY REGISTER

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Exploading loans: A primer

Subprime loans come in many varieties, and every one of those varieties is on display in the 900 block of West Camile Street in Santa Ana.

Here are the most common loan types and the number of examples on the street, taken from Orange County land records.

Each house appears one to five times depending on how many subprime features its mortgage has. Since lenders don't have to disclose all loan details in the public land records, the number of examples may be low.

Hybrid ARMs let borrowers qualify at a low fixed rate, then shift to a much higher floating rate in two, three, five or seven years. Since payments typically rise 30 percent or more when the loan resets, critics call these "exploding ARMs."

Nationwide, 80 percent of subprime loans are hybrid ARMs.

Number on Camile Street: 14

Piggyback loans consist of a first mortgage and simultaneous second. The owner pays little or no money down, betting that prices will rise. If prices stagnate or fall, the borrower is trapped.

Number on Camile Street: 7

Interest-only loans give borrowers a two- or five-year holiday from paying the principal. They have to make up for the break by paying the deferred principal later.

Nationwide, one in every four subprime loans is interest-only.

Number on Camile Street: 7

Balloon payments also defer principal payments. Typically some or all of the principal is delayed until the end of the loan period, and borrowers must refinance.

Number on Camile Street: 5

Prepayment penalties punish borrowers who refinance within two years of getting a loan. Typically the penalty equals 2 percent to 3 percent of the loan value – not a big deal if home prices are rising but a trap if prices are stagnant or dropping.

Nationwide, two-thirds of subprime loans carry prepayment penalties.

Number on Camile Street: 3

Negative-amortization loanslet borrowers increase their debt. The debt still must be paid – often after the loan has reset to a higher rate.

Number on Camile Street: 2

Sources: Orange County Clerk-Recorder, Fitch Ratings, The Orange County Register

Getting help

Homeowners in mortgage trouble can call the Homeownership Preservation Foundation for help. The nationwide non-profit has counsellors who work with lenders to try to prevent foreclosures. Call toll-free in English or Spanish: 888-995-HOPE (4673).

The frenzy of subprime lending that pumped billions to lenders and Wall Street investors has devastated West Camile Street, where working-class families signed up for risky home loans they thought would bring them the American dream. (VIDEO: Go inside some of the homes on the street.)

An Orange County Register investigation found that lenders targeting Hispanic buyers wrote $19 million in loans on this modest Santa Ana block of 1920s bungalows, where roses and jasmine bloom behind white picket fences. Those loans helped nearly triple sales prices from $182,000 to $600,000 over five years. Some owners got cash out. Others sold for big profits.

Then the credit stopped. And home values crashed.

Lenders seized the homes at 920 and 946 after owners failed to keep up with payments. 946 sold at a loss, and 920 is in escrow at a loss. Lenders also filed default notices against the owners of 926 in April and 937 in June. "For Sale" signs hang outside five of the remaining 48 homes. Desperate to escape escalating payments, the owners of 937 and 1033 have slashed prices.

A year ago, Angelita Medina Albarran, 47, a garment worker at St. John Knits, took out two loans from Fremont Investment & Loan to cover the entire $600,000 purchase price for 919 W. Camile St., a 1,450-square-foot bungalow. Her five grown children help pay the mortgage - $4,000 a month and scheduled to rise in May.

"La droga," Medina Albarran said. That's Spanish for "drug" - Mexican slang for a crippling debt. The people of West Camile Street, she said, are "endrogados" - hooked on debt.

A Register analysis of federal housing data pinpointed West Camile Street as a center of the subprime borrowing binge. In 2005, 75 percent of the home loans in the surrounding census tract were subprime.

That's the highest concentration of subprime loans in Orange County and one of the densest in California. More than 200 neighborhoods in California, particularly in south Los Angeles and the Inland Empire, were similarly dependent on subprime lending. So were at least three dozen counties in other states.

For these places the story of Camile Street is a warning of things to come.

On Camile Street every variety of la droga is on display: adjustable-rate loans with low teaser payments that quickly escalate; prepayment penalties so large that homeowners cannot refinance; "piggyback loans" so low-income buyers can own a house with no money down. All are described in long, complex documents that many Spanish-speaking buyers cannot read.

The Register found that the brokers and lenders gave little consideration to the long-term performance of a loan or to borrowers' future. Subprime loans became the dominant source of funding for black and Hispanic buyers. Now the hidden costs of these loans are coming due, blighting neighborhoods as surely as any drug plague.

Residents, many of them former renters, saw the loans as a path to middle-class stability. Some did not understand the loan documents they signed. Others saw the risk but counted on being able to refinance before payments got too heavy.

From April through June a record 17,408 California homes were lost to foreclosure, according to DataQuick Information Systems, a La Jolla real estate tracking company. The Center for Responsible Lending, which opposes predatory lending, estimates that 23 percent of subprime mortgages made in Orange County last year will end in foreclosure. That would be about 2,500 of the 11,000 homes bought with subprime mortgages, or 7 percent of the 36,000 homes bought last year in Orange County.

For West Camile Street residents like Medina Albarran, the outlook is dire.

During the boom years, finding another loan with another low-interest teaser rate was easy.

"When I talk to you about gangs and graffiti, it's when usually the houses are empty. They have access to do their thing. And it's not really good for the kids to watch those kinds of things." -- Jose Ramos, father of four who owns two homes on the block ROSE PALMISANO, THE ORANGE COUNTY REGISTER
NO SALE: The owner of 1042 W. Camile, where Ingrid Flores, left, and Odalis Gonsalez play, was unable to sell it, despite reducing his price. ROSE PALMISANO, ORANGE COUNTY REGISTER
HARD TIMES FOR NEIGHBORHOOD: Camile Street residents pass a boarded up home for sale. The Santa Ana neighborhood has eight homes that are for sale or in foreclosure. ROSE PALMISANO, THE ORANGE COUNTY REGISTER
BROKEN HOMES: Passers-by ignore the "for sale" signs on Camile St. where more than a dozen homes are for sale or are being foreclosed. ROSE PALMISANO, THE ORANGE COUNTY REGISTER

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